Malvinas: UK-based oil & gas company to enter farmout deal

UK-based “Falkland Oil and Gas Limited” (FOGL) is close to farming out a 25 percent stake in its Malvinas exploration licenses in a deal allowing it to fund expanded drilling plans on the South Atlantic archipelago's basins, according to a statement released by the company.

In addition, a statement released by FOGL said it has agreed the terms of a farmout deal with an unnamed counterparty which has completed all technical and commercial due diligence on the deal.

The news come a week after Foreign Minister Héctor Timerman announce that Argentina will take legal action against any companies involved in oil exploration in the Malvinas Islands.

Likewise, Timerman called all exploration activities “illegal” and “illegitimate”, and stressed that Argentina will bring civil and criminal charges in order to, “sanction the companies involved.”

Furthermore, companies providing logistical and financial support to the exploitation of Malvinas oil will be included in the suits, the minister said.

The terms of the agreement indicate that the counterparty would farm-in to 25% of the FOGL licence areas and would contribute its pro-rata share of the 2012 drilling programme, comprising two exploration wells.

Likewise, the counterparty would also pay its pro-rata share of certain historical costs incurred during 2011 related to preparation for drilling this year. The costs incurred are estimated to be u$s107.9 million gross

In addition the counterparty would make a cash contribution of 63.5 million dollars; half of it on completion (expected to be prior to the spudding of the Loligo well) and half in 2013.

It is also clear that FOGL will retain licence operatorship.

The unnamed third party company is not expected to start any drilling activities within the next two months as explained in the statement:

“For corporate reasons unconnected with the proposed farmout, the counterparty is unable to execute the (deal) at this time, but expects to be able to do so within the next two months and prior to the commencement of FOGL's drilling program”, the statement signed by FOGL’s CEO Tim Bushell said.

In January, FOGL raised 74 million dollars to help fund exploration at its deepwater Loligo oil prospect to the southeast of the archipelago, which is believed to hold up to 3.5 billion barrels of recoverable oil, or 12 Tcf of gas and 200 million barrels of liquids, testing several deeper reservoirs with total mean prospective resources of 4.7 billion barrels.

The funds will also cover the cost of drilling another prospect, named Scotia, which the company believes holds mean prospective resources of 1.06 billion barrels.

FOGL took over operatorship of the deepwater license in a settlement deal last year after the exit of Australian partner BHP Billiton. As part of the deal, BHP still has the option to back into the Loligo area if the well finds hydrocarbons.